IRS Tax Code 72(t) rules for early distributions from qualified retirement plans, including IRAs, are numerous, containing 10 subheadings with detailed rules, notes Cornell University Law School. The key rule is 72(t)(1), which imposes an additional 10 percent tax penalty for non-exempt distributions that occur prior to age 59 1/2.
There are seven types of exemptions described in subsection 72(t)(2), as noted by the Legal Information Institute at Cornell. These include distributions for individuals called to active military duty, or for those who use the funds to pay expenses such as medical costs and tuition fees for higher education. Rule 72(t)(4) describes an exemption of the tax penalty for individuals who spread early distributions out over the longer of five years, or until age 59 1/2. Once payments begin, they may not be modified. If this happens, penalties are imposed retroactively to the year of the first distribution.
The age 59 1/2 rule does not apply to the deferred compensation plans of state and local government employees. Their accounts are referred to as “457 plans," according to 457(b)wise. Rule 72(t)(9) clarifies that only amounts of money the employee has rolled into a 457 plan from a previously owned qualified retirement plan are subject to early distribution rules.